Centimeters, bubbles, trade

September 23, 1988

By HR

IS a US-Japanese free-trade pact an idea whose time has come? Mike Mansfield, American ambassador to Japan, thinks so. James Baker conducted a secret study of the prospects of such a pact while he was secretary of the Treasury. Japan's Ministry of International Trade and Industry, the redoubtable MITI, is studying proposals for an Asian-Pacific trading bloc. And with the free-trade agreement with Canada ratified by the US Senate this week, people have trade blocs on their mind.

The idea has a definite appeal. But some caveats are in order.

First, a free-trade zone should enhance free trade between or among its participants rather than restricting trade with nonparticipants. Second, no one should consider a free-trade pact a ``quick fix'' for US-Japanese trade frictions. And third, a lot of hard economic analysis remains to be done.

We might identify two basic approaches toward free trade. The ``centimeter'' approach, represented by GATT, the General Agreement on Tariffs and Trade, lines up all its participants and negotiates toward free trade one centimeter at a time. Just about everyone is included, but progress is slow.

The ``oil bubble'' approach has been represented by the European Community. Oil floats to the top of a salad dressing bottle in little bubbles that bump to make bigger bubbles until ultimately one layer of oil forms at the top of the bottle. The EC began with the Benelux countries and France, West Germany, and Italy, and over the years has absorbed six other member ``bubbles.''

In the Pacific Rim, we might expect a US-Japanese pact to absorb the bubbles of Asia's newly industrialized countries, as well as Canada and Mexico, and perhaps other parts of Latin America. A Pacific bubble might merge with an Atlantic or European one, and eventually just about all the nations that wanted to could take part in the free-trade game.

All this bubble-merging assumes rosy economic conditions among the participants, but aside from that, the critical question is, Are such blocs more concerned with lowering barriers among their members or raising them against nonmembers? Many watching EC steps toward its ``single market'' program for 1992 fear its focus is the latter. In fact, one rationale for a US-Japanese pact is that it would counteract ``Fortress Europe.''

But a ``Fortress US-Japan'' would also cause misgivings, notably among Japan's Asian neighbors, where its wartime imperial shadow still falls, at least in memory. A broader-based Pacific pact might be more politically acceptable internationally, but more difficult to manage technically, since the Pacific nations are such a diverse lot.

And again it must be stressed, there will be no quick fixes for US-Japanese trade issues. The two countries will have to get down to specifics. But it would be better to negotiate a broad framework for resolving disputes than just to keep negotiating resolutions to specific disputes. Surely that would mesh with the Japanese preference for longstanding relationships.

One view is that issues of tariffs and quotas be left to GATT and the United States and Japan should consider negotiating instead a bilateral economic pact to provide a forum for resolving those issues that don't fall under the traditional free-trade rubrics: US access to the Japanese distribution system, for instance, or treatment of intellectual property rights. Even without a free-trade arrangement, much could still be done to harmonize US-Japanese economic relations.